SECOND OPINIONS: Proposed Wellness Rules under the ACA

February 13, 2013 (PLANSPONSOR.com) - At the end of 2012, the Departments of Health and Human Services, Labor, and Treasury issued new proposed wellness rules that, when finalized, will go into effect January 1, 2014.

The proposed rules build on the existing HIPAA wellness rules, but make changes required by the Affordable Care Act (ACA), as well as other changes. Below we highlight these new rules and answer questions we have received.

What are the new limits for wellness programs?

Currently, the HIPAA wellness rules allow a group health plan to provide an incentive for health-based programs of up to 20% of the cost of coverage (employer plus employee contributions). For example, if a wellness program provides a premium credit for a favorable cholesterol reading or for certifying that an individual does not smoke, these would be considered health-based incentives and limited to 20% of the cost of coverage. Plans must add the incentive amounts for all health-based wellness programs and, together, they must not exceed 20% of the cost of coverage.

The ACA increased this limit to 30% and allowed the agencies to increase the limit to 50%. In the new proposed rules, the agencies stayed with the 30% limit for all programs except those that provide an incentive related to tobacco use, where the program is allowed to use up to a 50% limit. This means that a program that has both tobacco and non-tobacco health standards could use the 30% limit for the non-tobacco standards and then use another 20% for tobacco use (for a total of 50% when tobacco use is added).

Does the 30% / 50% limit apply to all wellness programs?

No – the limits only apply where the standard is health-based, such as achieving a certain favorable body mass index, weight, or cholesterol level or where requirements are aimed only at certain at-risk individuals, such as those with diabetes. In addition, rewards or penalties related to tobacco use are considered health-based. Where a program provides an incentive simply for participation – such as completing a health risk assessment, taking a biometric screening, or attending a nutrition class (with no other requirement that would be judged based on health), the reward does not have be calculated in the 30% / 50% limit.

Is the limit higher if we add dependents?

Under both the current and new proposed rules, if the wellness program is offered only to employees, the 20% (or new 30/50%) is based on the cost of single coverage, regardless of whether the employee is enrolled in single or family coverage. If the program also is offered to dependents, the 20% (or new 30/50% limit) is based on the cost of coverage in which the individual is enrolled (so, if family coverage, 20% of family coverage).

What is the reasonable alternative and did this rule change?

Under both the current and new proposed HIPAA wellness rules, the plan must provide a "reasonable alternative" way to earn the incentive if an individual is medically incapable of meeting the initial standard. For example, if an individual is medically incapable of achieving the required body mass index number, the plan could, instead of the health standard, require the individual to attend a nutrition class or follow doctor's advice in order to earn the same reward. Generally, the plan can require a doctor's note to show medical incapacity, but this may change under the final rule.

The proposed rule also goes a step further and would require plans to offer an alternative to everyone who fails a health standard - regardless of whether they are truly medically incapable or have a doctor's note. This new rule creates questions about just how customized these alternatives must be if everyone who does not qualify for one standard must be given another one. This will be an area to watch in final rules.

What other requirements are there under the HIPAA wellness rules?

Both the current and new proposed wellness rules require that individuals be given a chance to qualify for the incentives at least annually, so individuals are not "locked out" of being able to earn rewards for more than one year. In addition, plans must disclose the availability of the reasonable alternative that is available to those who are medically incapable (and the expanded alternatives available to everyone under the proposed rules). Both the current and proposed rules provide sample language for this disclosure.

When do these new rules apply?

The new proposed rules with the increased 30 / 50% limits do not apply until January 1, 2014 (for plan years beginning on or after January 1, 2014). And these are only proposed, so the final rules, which should be issued before then, may not end up adopting these increased limits or all of the provisions in the proposed rules. Plans that offer wellness programs will need to look out for the final rules. In the meantime, plans that offer wellness programs still must operate under the current HIPAA wellness rules, including the 20% limit.

Do the new rules apply to grandfathered plans?

The proposed rules clarified that they will apply to both grandfathered and non-grandfathered group health plans (insured or self-funded), but do not apply to individual coverage.

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C. She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare. She represents employers designing health plans as well as insurers designing new products. Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE: This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.